1. How would you describe the risk of business corruption in Japan?

Overall, Japan is a low-risk country for corruption. On the TRACE Matrix, a valuable tool that measures business bribery risk by country, Japan ranks 8th out of out of 197 countries – with an overall risk score of 26, where 1 indicates the lowest risk and 100 the highest.

Japan has ratified and implemented the OECD Anti-Bribery Convention and has signed the United Nations Convention Against Corruption. Under Japanese law – Article 22 of the Unfair Competition Prevention Act (“UCPA”), Act No. 47 of 1993 – corporate officers who accept bribes may be subject to fines of up to 300 million yen (approximately USD $2.4 million) or imprisonment. The UCPA also criminalizes bribes of foreign public officials made by Japanese nationals. Further, the Penal Code (Act No. 45 of 1907) criminalizes making bribes within Japan (Article 198) and penalizes government officials who accept bribes.

However, corruption still infiltrates the business sector via the traditional practice of amakudari – in which senior government officials take top positions in companies, upon retirement from public service. The private-sector companies that these former public servants join are usually tied to (or under the jurisdiction of) their previous ministries or agencies. Often, these former officials then use their government connections to influence the business of the private companies they have joined. In some cases, the former official joins a government-owned company, often earning a very high salary at the taxpayer’s expense.

2. How do these forms of corruption typically impact foreign businesses?

Since companies in Japan are so intertwined with the government through amakudari, the ability of foreign companies to compete is often hindered. In particular, studies show that companies with amakudari employees face a serious bid-rigging problem. Conversely, as recognition and awareness around these negative economic impacts grows, it is possible that companies wanting to conduct business ethically may look to foreign businesses operating in Japan.

3. Which business sectors in Japan are particularly risky in terms of corruption?

Bid-rigging is especially prevalent in bids for government public works projects, and conflicts of interest are particularly common in the financial, construction, transportation and pharmaceutical sectors, which are some of the most heavily-regulated industries in Japan. Public procurement can sometimes be closed to foreign firms in these industries, further contributing to bid-rigging, collusion and “pork-barrel” politics. Recent action by the Japanese government against Novartis for allegedly falsifying results of clinical studies shows that the pharmaceutical industry is beginning to be more closely monitored.

4. What steps can foreign companies take to protect themselves?

Above all, foreign companies working in Japan need to vet their third parties, such as distributors and partners before contracts are signed. Through this due diligence, companies need to learn the full extent to which their prospective partners have government exposure or involvement, both past and current. Companies also need to have clear policies about government interactions and conflicts of interest.

Foreign companies can work with entities in Japan that have already completed a rigorous due diligence process based on international standards, such as TRACE certification, which includes training and continuous daily screening against international sanctions and enforcement lists. Companies can also work with organizations such as TRACE to have their Japanese business partners undergo the level of due diligence commensurate with the level of risk in that company’s industry.

This commentary is presented for informational purposes only. It is not intended to be a comprehensive or detailed statement on any subject and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this commentary is intended to provide financial, legal, accounting or tax advice nor should it be relied upon. Neither EDC nor the author is liable whatsoever for any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.